Managing contracts can end up taking up significant amounts of time if you’re not structured with your approach. Contracts can range from the simple to the complex, from the brief to the very long, and if it’s your role to manage them you’ll need a system in place.
If your business is not yet ready for dedicated contract management software, a good place to start is by capturing the essential information in a central document.
This will ultimately save you the time and effort required to access each contract individually and will make sure you stay on top of your responsibilities.
Here, we’ll lay out the key pieces of information you should be looking to capture as a minimum for each contract and provide you with some downloadable templates to get you started.
10 Vital pieces of data for each contract
1. Contract Start Date
A nice easy one to begin with. This date is like the contract's birthday, and just like a person's birthday, can be part of a unique identifier that helps distinguish a specific version of a standard contract that may be in wide use.
In many contracts, certain events occur on each anniversary of the start date such as:
- A review of some kind, performed by the buyer or supplier
- Annual fees may be due
- The contract may automatically renew or be terminated if no advice to the contrary is received by the supplier before a certain cut-off date.
2. Contract End Date
Another easy one. Once you have this recorded, you can work out how long you have until the contract expires or requires renewal.
3. Contract Term
The term provides a snapshot of the time commitment. It’s useful for calculating annualised contract value when dealing with a multi-year contract where the value is expressed as a total figure for the term.
4. Contract Value
Where a contract has a term of 12 months or less, contract value should represent the total value of the contract.
For longer term contracts when only a total value for the term is provided by the supplier, it can make more sense to show an annualised contract value for consistency with budget cycles and tracking actual vs estimated spend year-to-date.
Regardless of whether an individual contract value represents an annual figure or a total for the term, it is necessary to either select one or the other method and use it for all contracts or record for each contract the method used.
5. Key Contract Events
A contract may specify a range of date-driven events, like a price review at each contract anniversary.
Other events may not be so explicitly stated but can be inferred and then included in the list. A key example might be auto-renewal of a contract on a certain date unless the supplier receives a termination notice by an earlier date.
Finally, other events can be derived from analysis of specified and inferred events.
For example, working back from the specified end date to the inferred auto-renewal date might then trigger some further internal events (such as meetings or reports) to assess the contract and whether it should be renewed.
Details of such inferred and derived events should also be recorded, as well as deliverable milestones and anything else that is triggered by date.
6. Obligations and Rights
An obligation is something that must be done (eg. a supplier must provide a valid tax invoice in order to be paid) or must not be done (eg. a supplier must not issue an invoice later than six months after the applicable goods / services have been delivered).
A right is something that may be done (eg a supplier may charge interest on late payments).
A critical Contract Management function is ensuring that a high level of compliance with contract obligations is achieved. This can only be done if all contract obligations are identified, a checking method for each is prepared, and compliance checking is scheduled with suitable frequency (see 5. Key Contract Events).
7. Contract Summary
Contracts often have a reputation for being difficult to understand. Unfamiliar language and phraseology can make it hard for a layperson to extract the meaning and detail from a contract.
A plain language summary of key contract details that can be readily understood by operational people, who work with and by the contract, will go a long way towards making those people a little more self-sufficient. Thus relieving the load on the Contract Managers and the lawyers.
8. Contract Management Plan
The plan is a simple, high-level list of key activities relevant to the management of a contract, and the frequency of any repeating activities.
It is typically set up during the Initiation stage of the contract lifecycle as an overview of what's intended, and can be modified at any time.
9. Contract Risks
Operational prudence requires that the risks applicable to a new contract are identified early in the lifecycle and appropriate mitigation approaches adopted.
Regular reviews of the ongoing relevance of the risk profile and mitigation approaches (see 5. Key Contract Events) help ensure that the contract keeps pace with current risks.
10. Key Contacts
Discussions between a Contract Manager, the internal operational owner of a contract and/or the supplier may be required at any time and at short notice in the event of a major issue arising.
It is important that both internal and external contact details are regularly checked to ensure currency and minimise hassles at critical times by trying to find out who to contact.
For more information and advice on contract management you can read our related blogs:
- What is contract management (and why is it important for your business)?
- Managing contracts with Excel
Or contact us and we can discuss how Gatekeeper can assist you with managing your vendors and contracts.
Alternatively, if you'd like to download all of our Excel Templates (13) in one document, you can do so via this link: